Last week, the unelected European Commission demanded that the United Kingdom pay an additional $2.8 billion to fund the European Union. The new charges resulted from the fact that the British economy had grown faster than had been expected in the past year. The demand sparked outrage from Great Britain's Prime Minister, David Cameron, and media, particularly as France and Germany would receive rebates, financed largely by the new funds being demanded from the UK. Looked at in a different light, it is simply a tax on growth that will not sit well with the British public, and could perhaps hasten the day that the UK will split from the Eurozone.

The EU is struggling with recession, and the survival of the euro, the world's second largest currency, is threatened with continued devaluation, and potential extinction. Already, two of the Eurozone's most powerful members, Germany and France, are experiencing negative economic growth. Although the 18-member Eurozone is run as a "one country, one vote" basis, few have any doubt that Germany, by far the richest and strongest member nation, dominates policy as the first among equals. Germany is a 'sound money' nation which does not believe in the Anglosphere's Fed-led easy money policies of Quantitative Easing (QE) and Zero Interest Rate Policy (ZIRP). In addition, as a nation with massive reserves, Germany accepts more easily the policies of austerity, when assets experience falling prices while money retains and even increases its purchasing power, benefitting the savings of frugal Germans.

But as recession threatens throughout the Continent, the calls for governments to unleash more socialist-style spending have increased. Recently, EU member governments proposed EU spending cuts of some $2.6 billion. However, they were overturned by the left-leaning EU parliament. Instead, they asked more funds to be contributed to the EU by member nations, precipitating the showdown with Great Britain.

As the second largest net contributor to the EU, the UK has shouldered much of the EU's bank rescue costs. As if to rub salt into the wound, the EU Commission demanded the UK pay its new assessment by December 1st, or within 6 weeks. Cameron reacted strongly saying "I'm not paying that bill on December 1st. If people think I am, they've got another thing coming. It is not going to happen."Initially, it may appear stunning that the European Commission would risk fermenting the already strong anti-EU sentiments. However, on further examination, this 'unacceptable fine', gives Cameron a most welcome opportunity to appear to stand up to the EU, even of achieving a stunning subsequent election victory, if he succeeds in 'appearing' to force the EU to climb down. Here it should be noted carefully that Cameron said he would not pay by December 1st, notthat British taxpayers would not be forced to pay, eventually.

Already, Cameron has failed to divert the EU's proposed Transaction Tax, targeted primarily and covertly at Britain's profitable financial center, known in Britain as "the City", which many EU member states eye with competitive envy. Meanwhile, outgoing EU president Manuel Barroso used a recent visit to London to sell more EU propaganda to prepare for a 'yes' vote should Cameron be forced to make good on his 5-year old "cast-iron guarantee" of granting the British people a Referendum on their continued EU membership.

Next year, Cameron must fight hard to win a General Election and further, to stem a subsequent 'no' vote on Britain's continued EU membership. Key to his success likely will be his perceived but impossible claim that the British will be able to exert substantial influence with policymakers in Brussels. As a result, the so-called 'fine' may be a covert Machiavellian attempt to help Cameron 'appear' able to negotiate changes within the EU. It would boost his chances of a domestic election victory, thereby cementing Britain's EU membership and allowing continued direct funding of the EU and its persistent EU trade deficit. Admittedly this is a cynical view of how politics may be playing out between Britain and the Continent, but after years of lies and failures, would it be possible to view things any differently?

The stakes couldn't be any higher. Any perception now that Britain is becoming a cog in a broken European machine, will raise the possibility that voters will demand to go to the polls and bring the pan-European experiment to an end. Should Cameron fail to win a vote for the UK to remain in the EU, it will herald major ramifications for international financial markets, especially for currencies and bonds. Without Britain's continued financial support, the debts currently being incurred by the Eurozone will be much more difficult to bear.

As a result, do not be fooled by Cameron's tough talk. It could be just a tactical retreat in a longer war.

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

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